Genmab A/S (NASDAQ:GMAB) Q1 2023 Earnings Call Transcript May 10, 2023

Genmab A/S misses on earnings expectations. Reported EPS is $0.05 EPS, expectations were $0.65.

Operator: Hello, and welcome to the Genmab’s First Quarter 2023 Financial Results Conference Call. As a reminder, this conference call is being recorded. During this telephone conference, you may be presented with forward-looking statements that include words such as believes, anticipates, plans or expects. Actual results may differ materially, for example, as a result of delayed or unsuccessful development projects. Genmab is not under any obligation to update statements regarding the future nor to confirm such statements in relation to actual results unless this is required by law. Please also note that Genmab may hold your personal data as indicated by you as part of our Investor Relations outreach activities in order to update you on Genmab looking — going forward. Please refer to our website for more information on Genmab and our privacy policy. I would now like to hand the conference over to your first speaker today, Jan van de Winkel. Please go ahead.

Jan van de Winkel: Hello, and welcome to Genmab’s conference call to discuss the company’s financial results for the period ending March 31, 2023. With me today to present these results is our CFO, Anthony Pagano. Let’s move to Slide 2. As already said, we will be making forward-looking statements, so please keep that in mind as we go through this call. Let’s move to Slide 3. During today’s presentation, we will reference products being developed under some of our strategic collaborations. This slide acknowledges those relationships. Let’s move to Slide 4. Before we look at our first quarter results, I want to remind you of our consistent track record of success. Our proprietary technologies fuel our robust product engine, which is both expanding and maturing.

By the end of this year, there is the potential for 8 approved medicines powered by our innovation, half of which would be DuoBody-based bispecifics. This is validation of the DuoBody technology’s potential to create truly differentiated bispecific antibody therapeutics, and our growing recurring revenue streams allow us to continue to invest in our pipeline and in our people. Our world-class team of experienced and dedicated colleagues drives our innovation motivated by the passion for making a difference in the lives of people living with cancer and other serious diseases. Let’s now turn to recent accomplishments that will support our future success. Slide 5. In the first quarter of the year, we continue to lay the groundwork for the potential approval of epcoritamab, and we are very excited for the potential upcoming launch and the opportunity to serve patients with third-line plus diffuse large B-cell lymphoma.

The Alliance steel teams across sales and marketing, medical and market access are all in place and have been fully prepared for the launch. And our patient services team is also in place and fully ready. We are actively engaging with the FDA and look forward to the future enhancement at May 21 PDUFA date. Pending approval, we anticipate epcoritamab will benefit third-line plus diffuse large B-cell lymphoma patients, where the level of unmet need remains high. This indication will be the first that will enable epcoritamab to become the potential core therapy across the diffuse large B-cell lymphoma, follicular lymphoma and beyond. As part of our effort to deliver epcoritamab to relapse or refractory diffuse large B-cell lymphoma patients together with AbbVie, we launched our first pre-approval and expanded access program.

This program provides access to epcoritamab to a lot of our patients in the U.S. and Europe prior to potential regulatory approvals. Looking beyond relapse refractory diffuse large B-cell lymphoma together with AbbVie, we are committed to a robust clinical development program, evaluating epcoritamab in a variety of patient populations and treatment settings. This includes frontline diffuse large B-cell lymphoma, and I’m just very pleased to say that in February and March, the first patients were dosed in 2 frontline diffuse large B-cell lymphoma studies. The Phase III EPCORE diffuse large B-cell lymphoma II study in combination with R-CHOP and the Phase II EPCORE diffuse large B-cell lymphoma III study with or without lenalidomide in elderly patients.

Turning to recent and upcoming data presentations. Multiple epcoritamab abstracts were accepted for presentation at ASCO, including an oral presentation of data from one of the arms of the EPCORE NHL-2 trial, looking at epcoritamab in combination with rituximab and lenalidomide in patients with high-risk relapsed or refractory follicular lymphoma. We and our partners also had several abstracts accepted for presentation at last month’s AACR meeting. These include data from an interim analysis of Part C from the Phase II innovative 207 study of tisotumab vedotin and head and neck cancer or small cell carcinoma of head and neck. Though the number of patients including this in this initial data was small, just 15, the results demonstrated encouraging preliminary antitumor activity and an acceptable safety profile, highlighting tisotumab vedotin potential in solid tumors beyond cervical cancer.

Regarding programs followed by our innovations, DARZALEX continues to redefine the treatment of multiple myeloma. As you’ve seen, J&J’s net sales for daratumumab were up 22% over the first quarter of 2022. And that is generating almost DKK 2 billion in royalties for us, contributing materially to our robust financials. This brings me to the initial resolution of our second arbitration with Janssen relating to our daratumumab license agreement. As we announced last month, the arbitration panel dismissed our claims, though 1 of the 3 arbitrators dissent this. Subsequently, we announced our decision to file a request for a review of the awards. And as the arbitration is confidential, we do not intend to comment further, and we look forward to our continued collaboration with Janssen.

I would also like to acknowledge the appointment of Martine van Vugt to Chief Strategy Officer. Martina has been an integral part of Genmab almost from the beginning. In a new role, she will be responsible for overseeing the key areas of corporate strategy, corporate development, business development and licensing and alliance management. Martine’s addition to executive management further strengthens our already exceptional team and will help us to effectively deliver on our 2030 vision. Finally, I would like to bring to your attention an announcement in March from Lundbeck, Japan. Lu AF82422, which was created by Genmab as part of an agreement at Lundbeck, has been granted pioneer drug designation for the treatment of multiple system atrophy in Japan.

And this designation provides further support for the potential of our innovative antibody therapeutics outside of oncology. Let’s move to Slide 6. When we revealed our updated vision last year, we noted that while we would continue our commitment to antibody therapies for oncology indications, we would also look to move an additional — into an additional therapeutic area where our antibody expertise could make an impact. I’m very pleased to announce that we are entering the therapeutic area of immunology and inflammation as a stepping stone to achieving our inspirational 2030 vision. As we announced in April, we entered a multiyear collaboration with Argenx to jointly discover, develop and commercialize novel therapeutic antibodies with applications in immunology as well as in oncology.

By partnering with Argenx, we will be able to combine our company’s deep knowledge of the biology and therapeutic power of antibodies and have an opportunity to address patient needs in oncology as well as in immunology and inflammation. We look forward to a successful partnership with Argenx and to providing you with updates on the progress of this collaboration once we are ready to bring new product candidates to the clinic. This, of course, will take some time. I’m pleased to now hand over the call to Anthony to take you through our Q1 2023 financial results. Anthony, the floor is yours.

Anthony Pagano: Great. Thanks, Jan. We continue to strengthen our foundation in Q1. And of course, top of mind for everyone is the potential FDA approval of EPCORE later this month. And as we’ll see, our financials remain strong. Recurring revenues grew by 33% in Q1. This was principally driven by strong royalties from DARZALEX and other approved medicines. Our solid balance sheet, growing recurring revenues and significant underlying profitability allow us to continue to invest in our business and our pipeline in a very focused and disciplined way. And an important part of this has been to continue to build the team and capabilities that we need to succeed. So let’s take a look at those revenues in a bit more detail. We saw robust performance for DARZALEX in the first quarter of 2023.

As you can see in the chart, overall, net sales grew by 22%. That’s net sales of over $2.2 billion, which translates to almost DKK 2 billion in royalty revenue. This growth was driven by continued strong market shares, including strong adoption of the subcu formulation. For our royalties, we benefited from a higher effective royalty rate and an FX tailwind. And this is partially offset by a negative contractual hedge rate adjustment. So as you can see, DARZALEX remains a key driver of our revenue. We grew total revenue to nearly DKK 2.9 billion in Q1. And as I’ve already highlighted, that included a 33% increase in our recurring revenue. And here, to be clear, that’s on a reported basis. Excluding some FX tailwinds, recurring revenues grew by 28% on an operational basis.

This strong growth was driven by DARZALEX and Kesimpta, was partially offset by lower TEPEZZA net sales, which according to Horizon were negatively impacted by seasonality. Now taken together, this growth really illustrates the power of our recurring revenue. In line with the significant growth opportunities, total OpEx grew 51% in Q1. In R&D, we’ve accelerated our investment into our product portfolio, especially the advancement and expansion of EPCORE and, of course, other pipeline projects. We’ve also further strengthened our team to enhance our commercial capabilities and support our expanding pipeline. And of course, that includes the potential launch for EPCORE. Now let’s take a look at our financials as a whole. Here, you can see our summary P&L for Q1.

Revenue came in at nearly DKK 2.9 billion. That’s up 35% on last year. As mentioned previously, that’s favorably impacted by a small FX tailwind. Total expenses were about $2.4 billion, with 72% being R&D and 28% SG&A. And here, even with the increased investment, we’re still delivering over DKK 430 million of operating profit for the quarter. Moving to our net financial items. Here, we have a loss of around $150 million, which was primarily driven by 2 partially offsetting items. First, we’ve got the weakening of the U.S. dollar against the Danish krone in Q1, and this is negatively impacting the value of our cash and investments. On the other side of the ledger, we have an increase in interest income due to higher effective interest rates.

Then we have tax expense of $60 million, which equates to an effective tax rate of 21.2%. And that brings us to our net profit of over DKK 220 million. So as you can see, very solid financial performance to start the year. So with that, let’s take a minute to revisit our robust financial framework. First off, our revenue profile on the left. There are currently 6 products on the market that are generating significant recurring revenues, and we see a clear path to potentially expand a number of approved products with the potential approvals for EPCORE and Janssen’s talquetamab. Taken together, we expect significant cash inflows in the years to come. Now moving to the right. We remain focused in our investments as we evolve our organization for continued success.

At the top of the list is accelerating and expanding EPCORE, but that’s just one of the exciting opportunities that provide us with a compelling rationale for increasing our investment. As we’ve told you before, if we want to seize these meaningful opportunities, we’ve got to invest, and that’s exactly what we’re doing. So with that background, let’s now take a look at our guidance. To start, we’re on track to meet the financial targets that we outlined back in February. As a reminder, note these projections are based on an assumed U.S. dollar-Danish krone exchange rate of 6.8. If we look at our revenues, we’re off to a strong start with marketed products that are generating significant recurring revenues. So we continue to expect our revenue to be in the range of DKK 14.6 billion to DKK 16.1 billion.

And most of this is made up of recurring revenue, where we’re expecting 25% of operational growth. And as I just noted, for Q1, we’re at 28%. For operating expenses, we expect to be in the range of DKK 9.8 billion to DKK 10.6 billion. As I previously highlighted, this step-up in investment is fully in line with our strategy and our focus on creating long-term value. Putting all this together, we’re on track to deliver another year of substantial operating profit in a range of DKK 3.9 billion to DKK 6.2 billion. So with that, let me provide a few closing remarks. In summary, we’ve had a very solid start to the year. We’ve created growing recurring revenue streams, and that gives us a strong backbone of significant underlying profitability, and we’re investing those revenues in a highly focused way to realize our vision and to capitalize on the very significant growth opportunities in front of us.

And on that note, I’m going to hand you back over to Jan.

Jan van de Winkel: Thanks, Anthony. In the first quarter of 2023, we continue to work towards our 2030 patients, where our KYSO antibody medicines are fundamentally transforming the lives of people with cancer and other serious diseases. As we near the PDUFA date for epcoritamab, we are enthusiastic about its potential launch. We are also looking forward to working with AbbVie to continue to expand EPCORE development with new studies. We are collaborating with our partner Seagen to establish Tivdak as a clear choice for patients with metastatic cervical cancer. And together, we will continue to broaden the tisotumab vedotin clinical development program. We also very much look forward to data from the clinical expansion cohorts and progress to the next steps of both DuoBody molecules targeting 4-1BB that are in development with together with BioNTech.

And we anticipate expanding and advancing other early-stage programs, including the potential for multiple INDs or CTAs this year. Fundamental to our success is having the right team and culture in place. We intend to continue to scale our organization on our planned portfolio development and business needs. Finally, we will continue to leverage our solid financial base to support our growth. We have a lot to look forward to in the coming months. So that ends our presentation of Genmab’s financial results for the first quarter of 2023. Operator, please open the call now for questions.

Q&A Session

Operator: [Operator Instructions]. Your first question comes from the line of Michael Schmidt.

Operator: Your next question comes from the line of Jonathan Chang.

Operator: And the question comes from Peter Welford.

Operator: Your next question comes from the line of Emily Field.

Operator: Your next question comes from the line of Asthika Goonewardene.

Operator: Your next question comes from the line of Matthew Phipps.

Operator: Your next question comes from the line of James Gordon.

Operator: And the question comes from the line of Peter Verdult.

Operator: The next question comes from the line of Yaron Werber.

Operator: And the question comes from the line of Rajan Sharma.

Operator: There are no further questions at this time, so I would like to hand back for closing remarks.

Jan van de Winkel: Thank you all for calling in today to discuss Genmab’s financial results for the first quarter of 2023. If you have any additional questions, please reach out to our Investor Relations team. We hope that you all stay safe, keep optimistic and remain healthy. And we very much look forward to speaking with you again soon.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.